Funding a Franchise Business: How to Leverage Available Capital

US-money-Pete-GilfillanThere it is. After numerous searches of available franchises, you finally found one to sink your corporate teeth into.

It has everything that you always wanted; there is a great franchise system and brand recognition set up, the franchise is in an industry you can really get behind, and there is plenty of available training including resources and mentoring to help you get on you overcome common business ownership obstacles.

Yet the initial investment price to start a franchise makes you wince.

Capitalization is a place where too many individuals let their business ownership dreams die by the wayside. The franchise fees, royalty fees, working capital and inventory costs are such a huge number figure that a person will simply make the excuse that if they wanted to spend that much, they would just go out and buy a new house or car.

Capitalization is a place where too many individuals let their business ownership dreams die by the wayside.

Resources are Available
Yet serious entrepreneurs, those who understand the business world from both ends, realize that there are ways for corporate workers to achieve their business dreams without letting the franchise costs stop them. Leveraging available capital isn’t as difficult as you may be led to believe.

However, it does require you to take a step back, sit down, and crack open your financial books. You need to figure out the best way to cover both the initial set up costs and the working capital needed to cover daily operations for the short term until you have enough positive cash flow from sales to cover expenses.

Leveraging available capital isn’t as difficult as you may be led to believe.

First, figure out your net worth. Basically, this is a balance sheet that details all your assets (from cash on hand to the cars you own) and your liabilities (all debts including home expenses and mortgages). Then you subtract your liabilities from your assets to determine your personal net worth.

After you determine what you have financially to put toward the franchise, you can figure out ways to fill in the finance gaps if you can’t buy into the franchise outright.

The good news is, there are plenty of options available to you to help raise the capital you need to own your own franchise.

Traditional Lenders
Commercial loans are usually the most sought-after financing option. Knowing your net worth and your credit history will allow you to help convince banks and credit unions to give you the money you desire.

SBA Loans
The 7(a) loan option is another highly sought-after finance option. These loans are guaranteed by the Small Business Administration, which gives you leverage with lenders who want to lower their risks.
Retirement Funds/401(k)s.

Retirement funds are a way for you to get the money you need without having to obtain a loan debt from a lender. Yet there are several caveats to this avenue. Make sure you use a reputable company that has a proven track record.

Franchiser Financing
In a perfect world, franchisers would cut out the middlemen and help you fund a franchise. Well, some franchisers do exactly that. The funding options can vary based on the business. Most franchisers are trending away from providing in house financing.

Franchise Funding Companies
There are companies that work specifically with franchisees who need capital. They may lend finances directly to you, or pair you with the best lender based on your assets and the franchise industry. Research and compare rates to get the best deal if taking this route.

You put in some money. A business partner puts in their share. You now own a franchise. While partnerships can make your business dreams come true, you need to hash out all the details in regards to ownership, management and profits of the franchise to have a smooth business operation.

Family and Friends
The amount you need may be so small that you could ask friends or family members to front the cash. One tip to keep in mind is that you should treat such an arrangement as a business transaction (by drawing up a contract) to ensure you pay back the loan and don’t cause hard feelings with the people you know.


Pete Gilfillan

Pete Gilfillan

Pete Gilfillan is a passionate business leader who is driven to help people achieve their dreams of career independence through franchise ownership. With more than twenty years’ experience as a corporate executive across multiple industries and a history of small business ownership, Pete brings a wide breadth of experience to his work as a franchise consultant. His unique knowledge of franchising, energetic outlook, and determination to find the right franchise for each candidate’s lifestyle and goals set Pete apart in his field. Since 2011, Pete has been working as an independent franchise consultant with FranChoice to help potential franchisees gather information, evaluate opportunities, and make smart selections in franchise ownership. In his role of helping each candidate find his or her optimum investment and lifestyle choice, Pete has found his most fulfilling and rewarding professional calling.

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